Social Security: A Strategic Approach

Social Security: A Strategic Approach

There are many factors to consider in planning for your receipt of Social Security benefits. Many investors consider the long-term prospects for this program, and wisely conclude that they should boost their private savings to cover the possibility that Social Security will not continue to pay at current levels. It’s sensible to be prepared, but also important to know that this system is not likely to disappear overnight. If you are within a few years of eligibility for Social Security benefits, you have important decisions to make in order to ensure that you optimize your lifetime benefits under current law.

For example, you may be aware that you are eligible for reduced benefits starting at age 62. The reduction in benefits is permanent. For every year that you delay receiving benefits, the monthly benefit amount increases by 8% up to age 70. This represents a substantial pay raise for those who are able to wait, and is likely to increase the total benefits you receive over your lifetime. There are calculators that can help you find the “crossover point,” or how long you have to live to realize larger lifetime benefits by waiting. You may think “I’ll never live that long, and the system may run out of money, I want to collect as early as possible.” But chances are that either you or your spouse may live long enough to realize a benefit from the bigger paycheck.

For married couples, you may employ a strategy that allows you to collect some benefits early, and let the larger benefit grow. One approach is to have the lower-earning spouse take early benefits, which will be reduced. The higher earner delays receipt of benefits in order to allow the larger benefit to grow. Protecting the larger benefit can be very important, as a surviving spouse can continue to receive the larger amount as a survivor benefit.

You may have heard of a strategy called “file and suspend,” where one spouse files for benefits at full retirement age and immediately suspends their own benefit. This enabled their spouse to file a restricted application for spousal benefits only. In this way both earners would allow their own benefit to grow while collecting the spousal benefit. This strategy is eliminated beginning in May of 2016 by a rule change in the Bipartisan Budget Act of 2015.

For details see “Social Security: Important changes for 2016 and later years.”

The choices you make regarding receipt of social security benefits can have a significant impact on your financial well-being. The rules are complex and subject to legislative changes.

If you need some help understanding the options in your particular situation, please don’t hesitate to call us at 408-551-6100 or toll free 800-927-8314 and ask to speak with one of our financial advisors or send us an email through the contact section of our website.